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New York Court of Appeals Finds Privity of Contract Required to Trigger Additional Insured Coverage

In its March 27, 2018 decision in Gilbane Building Co./TDX Construction Corp., et al., v. St. Paul Fire and Marine Insurance Company, et al., the New York State Court of Appeals considered whether an additional insured endorsement containing language providing for additional insured coverage, “with whom you have agreed to add as an additional insured by written contract,” requires a written contract between the named insured and the party seeking additional insured status in order for the additional insured coverage to be triggered.

The Gilbane matter arose out of an underlying property damage action. The Dormitory Authority of the State of New York (“DASNY”) contracted with Samson Construction Company (“Samson”) to act as a general contractor for the construction of a forensic laboratory. DASNY also contracted with Gilbane JV to be the construction manager for the project. Although Gilbane JV did not contract directly with Samson, DASNY’s contract with Samson required Samson to procure additional insured coverage for Gilbane JV. In order to comply with its contractual obligations, Samson obtained a general liability policy from Liberty Insurance Underwriters (“Liberty”) containing the following language:

WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you. [emphasis added]

DASNY commenced an action against Samson and the project architect, Perkins Eastman, Architects, P.C. (“Perkins”), alleging improper excavation which caused the adjoining building to settle several inches. Thereafter, Perkins named Gilbane JV in a third-party action. Gilbane JV tendered to Liberty, as the insurer for Samson, seeking additional insured coverage. Liberty denied the tender, and Gilbane commenced the instant suit. The trial court found that Gilbane JV qualified as an additional insured. The Appellate Division, with one judge dissenting, reversed finding that in order for Gilbane JV to qualify as an additional insured, it must have contracted directly with Samson.

The matter then went to the Court of Appeals with Gilbane JV arguing that based on “well-settled rules of policy interpretation,” and the reasonable expectations of the parties, a written contract directly with Samson was not necessary as Samson agreed in its contract with DASNY to obtain additional insured coverage for Gilbane JV. Alternatively, Gilbane JV argued that the endorsement is ambiguous on this point and must therefore be construed against Liberty in favor of coverage. Nevertheless, the Court of Appeals, with two judges dissenting, affirmed the Appellate Division’s decision, finding that the endorsement was “facially clear and does not provide for coverage unless Gilbane JV is an organization ‘with whom’ Samson has a written contract.”

Essentially, the decision turned on one word. The Court held that Gilbane JV’s position would have merit if the word “with” had been omitted, as the endorsement would read, “Any person or organization whom you have agreed by written contract to add.” Since the endorsement included the word “with,” the Court applied its ordinary meaning, stating, “The ‘with’ can only mean that the written contract must be ‘with’ the additional insured.”

According to the court’s holding in Gilbane, an additional insured endorsement specifically containing the language “with whom” now requires privity of contract between the named insured and the party seeking additional insured status to trigger additional insured coverage.

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